The Private Fund Adviser Rules (PFAR) are top of mind for general counsels and chief compliance officers and despite legal challenges, private markets firms are preparing to comply.
The Preferential Treatment Rule goes into effect for advisers with $1.5 billion or more in private funds AUM on September 14, 2024. For smaller advisers, the compliance date is March 14, 2025.
The first compliance date is coming up quickly, and Ontra has partnered with industry experts to bring you more information on the Preferential Treatment Rule — a substantially new requirement for all private fund advisers.
In a recent Ontra webinar, Malvika Gupta, Deputy Chief Compliance Officer and Regulatory Counsel at Antares Capital LP, and Lindsay Rutishauser, Principal and Chief Compliance Officer at Motive Partners, joined Caitlin Melchior, Ontra’s Senior Director of Industry, to discuss the rule’s impact on fund managers’ legal and compliance workflows.
Here are 3 key takeaways from that discussion.
#1: Private fund managers are figuring PFAR out as they go
With limited guidance from the SEC on how to implement Preferential Treatment Rule compliance, private fund managers are speaking to colleagues and legal counsel to determine how to proceed.
CCOs and GCs are taking inventory of their side letters to identify what material economic terms may need to be disclosed, then determining how to provide that information to investors. GPs are also considering how enhanced disclosure requirements will affect future side letter negotiations.
The private funds community has not reached a consensus about how to deliver disclosures to investors. Firms are considering whether to provide traditional compendia-like information to investors, develop special disclosure schedules, or simply provide side letters through a secure data room.
#2: New rules may complicate LP relationships
Before PFAR, GPs generally would not disclose one LP’s side letter terms to another LP unless required by the terms of an MFN provision. Now, more investors will be entitled to information about terms granted to other investors.
The impact of new disclosures on future side letter negotiations is uncertain:
Will side letters become increasingly standardized?
Will special terms be reserved only for the largest and earliest investors?
Will side letters continue to increase in volume and complexity as LPs better understand the terms being granted to other investors?
#3: Technology can simplify compliance
CCOs & GCs will feel the brunt of the new rules. Reducing the manual work associated with managing side letters and SEC compliance is a top priority.
To help ease the burden, firms are looking for technology solutions that can centralize data and workflows to allow legal teams to collaborate with operations, finance, and investor relations professionals.
Firms are also hoping that adopting new technology will have the effect of creating an “industry standard” for Preferential Treatment Rule reporting.
Listen to the full discussion
Watch the full recording of the Preferential Treatment Rule webinar for advice on how to approach compliance, evolutions in legal tech, and more.
